As ride-hailing apps move in, can St. John's avoid 'Uber remorse'?
Uber model creates artificially low rates to undercut taxi industry, expert warns
Taxi companies are bracing for a rapidly changing industry as ride-hailing companies prepare to set up shop in Newfoundland and Labrador, but experts disagree on the level of threat apps like Uber pose to the old guard.
The floodgates officially opened in December, when the provincial government changed legislation to open up competition on the ride-hailing front.
Several companies have already applied for transportation network licences and are waiting for approval, Service N.L. Minister Sarah Stoodley told reporters Wednesday.
"Uber exists in 10,000 cities," said Premier Andrew Furey last week, speaking at Uber's official launch. "They don't exist in isolation. They co-exist. We don't think of this as a competitive environment; we think of it as meeting and growing a market demand."
But according to one expert, that's exactly the opposite of how Uber operates.
Taxi industries are typically "very heavily regulated," says Eric Tucker, a law professor at York University who's studied the effects of Uber on municipalities.
"Uber would move in and simply say, those don't apply to us.… They were hugely disruptive of the existing industry."
The company, headquartered in San Francisco and founded in 2009, has operated at a loss for most of its existence, Tucker said. By keeping its prices artificially low, Uber can undercut local taxi companies.
"What Uber was doing was burning through billions of dollars of hedge fund investors' money in order to try to acquire something close to a monopoly position," he says.
"They would charge below-market, below-cost fares and therefore drive out the taxi industry. And once they achieved a certain level of market saturation, then they would start raising prices."
Tucker says he's seen an "enormous increase" in Uber fares recently, egged on by what he says is a now vastly weakened taxi industry.
"It had been losing billions and billions of dollars on the promise to investors that eventually, they could knock down competition and secure a quasi-monopoly and then generate profits," he said.
"It seems like in many places, they've now reached that point."
Uber could be good for business
It's not all doom and gloom, though.
The traditional Uber monopolization model doesn't necessarily need to play out here, says Tom Cooper, a business professor at Memorial University.
"It could be a real game-changer," Cooper says.
More selection for consumers means shorter waits for rides at peak hours and could offer a boost to the tourism industry due to what Cooper calls the "McDonaldization" of transportation: a universal standard app like Uber, he suggests, would be familiar to visitors from around the world.
But Cooper warns more diversity and competition is only good when there's enough demand to support the various firms at play.
"You want to make sure that you have that right level of of competition, almost like Goldilocks in terms of not too much, not too little, just about right. And that's really hard," he said.
Taxi companies are "going to be under some pressure," he added.
"But they've been resilient, they've done some amazing things over the years. They're good businesspeople. I expect they'll compete really, really well."
Tucker says added legal protections could prevent the taxi industry from faltering and disintegrating in the long run.
Regulations could include limiting the number of cars ride-hailing companies can have on the road, requirements for drivers to meet certain standards, and laws that protect workers.
"There are things to be done, and things have been done," Tucker said, "but there's a lot more, I think, that is required in order to address the challenges that Uberization poses."
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